March 27, 2007 — Charges against the former company of a St. Croix accountant are little more than a witch hunt meant to undermine the Economic Development Commission, an attorney said Tuesday.
J. David Jackson and three former business partners were indicted March 23 on 21 federal tax-evasion-related charges for allegedly using their EDC company, Kapok Management L.P., as a tax shelter for wealthy mainland investors.
Jackson's attorney, Gordon Rhea, said the indictment was meant to scare investors away from the entire EDC program, which gives federal and local tax breaks to qualifying V.I. business investors.
"The IRS has openly attacked the V.I. EDC program and individual owners and partners who operate qualifying EDC beneficiary companies. IRS has released rulings that directly oppose the territory's statutory EDC provisions and has pushed through federal legislation redirecting tax dollars previously collected by the territory back to Washington, D.C.," Rhea said in a written statement.
It was not the first legal trouble for Kapok, which operated out of Frederiksted from 1999 to 2006.
Insurance salesman Gary J. Payne pleaded guilty to tax fraud in 2004 after claiming EDC tax credits on money generated in Massachusetts. He also never lived in the islands full time, as mandated under the program rules.
Widespread media coverage of the Payne debacle prompted Congress to tighten the Economic Development Program, imposing strict rules that have dissuaded would-be investors.
"The U.S. federal government's visible actions against the Virgin Islands' EDCs began almost four years ago with a search of Kapok's offices in Frederiksted. This indictment appears as a belated and mean-spirited slap in the face of the Virgin Islands' economy by the U. S. Government, and demonstrates that the government is continuing its efforts to dismantle the Virgin Islands' Economic Development Program," Rhea said.
According to the most recent Kapok indictment, Jackson, Peter G. Fagan of DeLeon, Texas; and James W. Ferguson III of Amarillo, Texas; laundered more than $300 million for James A. Auffenberg Jr., a prominent car dealer in Swansea, Ill.
Auffenberg joined Kapok as a partner, investing the $300 million, and thus avoided more than $74 million in taxes from 1999 to 2002, prosecutors said.
In return, Kapok kept 5 percent of Auffenberg's money in exchange for bogus management fees, the indictment said.
Auffenberg runs at least two car dealerships in southern Illinois. He also serves on the board of directors of the United Way of Greater St. Louis.
Jackson, who runs J. David Jackson, PC, a Christiansted accounting firm, said he is innocent of the charges, according to Rhea.
The accounting firm was not named in the indictment, and the federal government's actions are not expected to affect the firm's accounting services, Rhea said.
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